Many companies have or will be taking concerted action regarding their compensation programs in response to the COVID-19 pandemic. As we work to stay on the leading edge of the issues that affect you most, we’ve summarized what has already been observed based on market trends as of this publication1:
These trends are logical – the pandemic’s near-term impact on business results has been significant, and conserving cash and reducing expense is critical. Most companies are hoping for a rebound longer-term, and as a result, are “staying the course” on – or in some cases reinvigorating – their LTI plans.
A well-crafted or enhanced LTI or deferred compensation plan can be a way to retain and motivate your best people and align them with the company’s goals and objections during a hoped for business recovery.
Compensation Plan Alternatives
Companies have many compensation plan alternatives from which to choose. The design of these plans is very flexible; they can focus on performance or retention, or both. We are highlighting a few of these alternatives, in order of implementation ease.
We note that, to reinforce retention, such plans require that a participant be employed on the payment date. If someone voluntarily leaves the company before the scheduled payment date, he/she would forfeit all or a portion of the payout.
Selecting and Implementing a Plan
The right alternative will depend on each company’s particular circumstances. Selecting those who should participate is a key consideration; companies need to determine who is critical to its longer term success, who can drive performance longer-term, and where there may be talent at a high risk of loss. There are also a number of administrative issues that need to be addressed and covered by a plan document, spelling out such terms as how and when payouts will occur in order to effectively motivate participants and comply with IRC Sec. 409A. Finally, we emphasize the importance of effective communication and implementation of a new plan.
If you have further questions, contact Don Nemerov or your relationship partner at FGMK for more information or to discuss your specific circumstances.
1Information was summarized from two sources: WorldatWork – “How Organizations Are Handling Rewards and Hazard Pay Decisions in a COVID-19 World,” March 2020; Korn Ferry – “Results of 3rd Pulse Survey Impact of COVID-19 on Rewards & Benefits,” May 2020.
The summary information in this document is being provided for education purposes only. Recipients may not rely on this summary other than for the purpose intended, and the contents should not be construed as accounting, tax, investment, or legal advice. We encourage any recipients to contact the authors for any inquiries regarding the contents. FGMK (and its related entities and partners) shall not be responsible for any loss incurred by any person that relies on this publication.
FGMK is a leading professional services firm providing assurance, tax and advisory services to privately held businesses, global public companies, entrepreneurs, high-net-worth individuals and not-for-profit organizations. FGMK is among the largest accounting firms in Chicago and one of the top ranked accounting firms in the United States. For over 50 years, FGMK has recommended strategies that give our clients a competitive edge. Our value proposition is to offer clients a hands-on operating model, with our most senior professionals actively involved in client service delivery.